QROPS and inheritance tax

If you have a UK pension, have you thought about what will happen to it when you die? It’s not a cheery thought, but even less cheery is the prospect of the taxman getting more than he deserves.

Given that the UK system forces members of private pension schemes to purchase an annuity at (or before) the age of 75, many investors find that their hands are forced into opting for a deal that may not be the best for them.

Not only is this unfair from the point of view of your own retirement planning, but also from the point of view of your beneficiaries. Put simply, if you die after the age of 75, the taxman gets most of the residue left in your income bearing product. If you die before the age of 75 (assuming that you haven’t yet purchased an annuity), the taxman will still get a hefty sum if your estate is worth more than the IHT threshold. Given that the UK IHT threshold, though changed every year is around the value of a family home, more and more pensioners are going to find their estates qualify.

If you have moved abroad for your retirement or are planning to do so, there is another alterative. If you have a private UK pension scheme, why not consider a QROPS? By transferring your pension into a Qualifying Recognised Overseas Pension Scheme you can take the opportunity to try to outmanoeuvre the taxman and let your beneficiaries enjoy the benefits of your hard earned cash.

QROPS are spread among around a hundred countries across the globe, and some of those will permit the direct transfer of your pension assets to your beneficiaries without the crystallisation of any IHT liability at all. Such direct transfers are completely lawful, and may offer a considerable saving on the UK pension option.

Taking a moment to consider the IHT aspects of a QROPS may also focus your mind on your estate planning, and provide the opportunity to update your will, if appropriate. Administering an estate is a difficult enough task if the deceased held assets in one country, but if your affairs are not in order your executors may have considerable difficulties in completing this task if your assets are spread in different countries.